EUR/JPY sellers win 38.2% fib battle; breaks sub 120.00 again

Against the backdrop of a 6 figures drop in EUR/JPY from highs to lows on Monday, bargain hunters, dip buyers and other traders that still see the Yen as a sell on rallies should be cautious, with the latest follow through to the downside in Yen crosses along Asia (underway) a reminder that momentum in favour of the Yen is still favoured.

Recent exorbitant gains in the Yen suggest that some big players, including hedge funds and CTAs, may have liquidated its short Yen position. As Kathy Lien, co-founder at BK Asset Management, notes: "Less than 2 weeks ago, the Wall Street Journal published an article talking about how major hedge fund players like George Soros and David Einhorn have made hundreds of millions to as much as a billion dollars shorting the Yen. It wouldn't be a complete surprise if some funds decided to liquidate."

The appreciation on the Yen comes at a time when consensus was still Yen bearish in general. As noted in a previous post, "one should be the most alerted that this type of collapses increase in odds when masses are all on one side of the boat, and what seems like the trigger, that is, bad election results in Italy, are simply the perfect excuse."

Technically, the EUR/JPY has rotated back lower at the 38.2% Fibonacci retracement of Monday's fall. The inability to close above such dynamic resistance is suggestive that sellers are still the dominant force in this market. On the downside, target eyed is a retest and potentially extension through Monday's 118.80 low, which would then see 117.00 Jan double bottom exposed. On the upside, a recovery above 122.30, the Feb 21 swing low, is require to restore confidence on buyers.